It takes two for tax breaks to work

Posted
Thursday, January 18, 2018 1:15 pm

Without getting bogged down into the nauseating details of the recent tax bill pushed through the federal legislature and signed by President Trump prior to the end of the year – we can shorten up the debate into two schools of thought.

One side – in a mentality that has persisted since Reaganomics first proposed the concept back in the 80s – still believes that the truest path towards economic recovery and prosperity is to ease regulations and taxes against larger corporations so that they will have more capital to hire employees, do their business and stimulate growth.

The other side – backed by comprehensive, numerous studies throughout the past three decades – sees the aforementioned belief as the ultimate political farce. Money that corporate CEOs and executive brass don’t have to pay in taxes does not “trickle down” in fiscal benefits to the lower economic classes – it goes to shareholders and bonuses for the wealthiest at the top of those companies.

While the latter viewpoint has been continuously, demonstrably proven in the years since Reagan left office, with the wealth gap widening exponentially and the richest 1 percent in the country making huge gains annually – that does not mean that trickledown economics does not work in theory.

In fact, the reason why trickledown still exists and is utilized as a political chess piece today is because, in theory, it works so well. It would also work, on a much smaller scale, every day in communities across America.

Various corporate entities are prolific donors to many different nonprofit missions in Rhode Island, and in states across the country. Entities like CVS Pharmacy, Stop & Shop, banks and credit unions, investment firms and everything in between could all, in theory, give more to nonprofits if they paid less in taxes in addition to providing better benefits packages and wages to their employees.

What the whole crux of this federal tax break issue truly comes down to is a classic human dilemma of greed versus the potential benefits to many. Will CEOs and other executives put the needs of others before themselves? Or will they pad their own wallets and keep their shareholders happy by giving them a slight increase in their quarterly dividend?

While cynicism – and, unfortunately, the test of time – has shown us that a majority will go in the direction of greed, there still exist glowing examples of selflessness right here in Warwick.

Mentor Rhode Island – which directly connects 350 kids with mentors and indirectly services about 5,000 more through its ancillary training and educational programs statewide – found a new home thanks to the generosity of Coastway Community Bank, that leased them an entire section of their building on Warwick Avenue for a whopping $1 per year for three years, with an option to re-up for an additional three years.

The gift, along with a large donation of furniture from Washington Trust, has allowed Mentor Rhode Island to focus its efforts on its programming and helping kids rather than overhead costs of owning a property, as it had in the past. Even more, it will be able to sell that building and inject even more capital into their operation – all for the benefit of children in Rhode Island.

While this is a special circumstance, and nobody would expect all for-profit entities to be this generous, it does set a good example for how beneficial good relationships between corporate and nonprofit entities can be – and it makes those unwilling to do right, even by their own employees, when they receive beneficial tax breaks on the backs of the middle class look even more repugnant by comparison.

Democrats have fought corporate tax breaks for decades – and for good reason, considering how historically little or none of those breaks have actually gone towards improving the economy.

Now that this new, unprecedented tax break has gone through, all we can do is be vigilant to call out the greedy and give proper praise to companies that actually embody the potential of what trickledown economics could do to, in theory, benefit us all.

Comments

First of all, this is the largest corporate tax cut in over a century. So any comparisons with other corporate tax cuts is invalid. But let's look at what happens when corporations pay less taxes and what they can do with the new-found cash.

They could hire more workers. Winners: Workers.

Or, they could give bonuses to existing workers. We have already seen this in spades, as numerous Fortune 500 companies have already done. Winners: Workers.

Or, they could increase their dividends. Winners: Those who own the stock of the companies in question, either through direct ownership of the stock or through ownership of mutual funds or ETF's that hold the stock in nonqualified accounts or through retirement plans.

Or, those corporations could use the new cash to buy back their own stock. Winners: The same as those who benefit from an increase in dividends.

Or, they could expand existing facilities. Winners: The newly employed who will staff those facilities, and those workers benefitting from the expanded construction.

Or, they could build new facilities. Winners: Again, the newly employed and construction workers.

Or, they could repatriate profits currently held overseas and pay the new, lower rate here in the US. Winners: The US Treasury.

What this article predictably fails to point out is that shareholders demand that corporations NOT sit on cash. Bottom line: I fail to see how a reduction in corporate tax rates is a negative...to anyone! The average citizen does not have a 'right' to corporate profits, redistributionist alarmists not withstanding.

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